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Do UK workplace group personal pensions need to be reported on FBAR?

Do UK workplace group personal pensions need to be reported on FBAR?

Old Jul 20th 2014, 10:18 am
  #76  
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by zuluswede
Sorry for the confusion. My query was about whether the pensions needed to be included in FBAR (form 114). The endowment was the "trigger" for FBAR reporting.

Sadly there were profits and gains, although you might argue they were "small" compared to the amount in paid premiums and the final value was less than had been illustrated but ultimately I made a gain.

I did not know that, thank you I will mention that to the attorney.

Probably already given too much info that makes me "identifiable" but thanks for the info.


No I'm not, but as you pointed out, they're relying on the "scaremongering". I'd really like to get back to some restful nights rather than the sleepless ones I've been having since this hit the fan.

Thanks again JAJ. You're time and effort in this forum is greatly appreciated.
The IRS have a streamlined procedure. It may well be that you do not need to use this procedure and so can save the 5% penalty on undeclared foreign assets if you argue that you have reasonable cause as you relied on an adviser (your CPA) who you thought was competent. Hopefully your attorney has already discussed reasonable cause with you, if not find another one quick.

Sadly the HIRE Act signed on 18 March 2010 significantly extended the statute of limitations so in many cases it no longer closes where there are undeclared foreign items.

Moving to the items in question:
1. A defined contribution pension plan that was mainly paid for by an employer and has not been rolled over to another plan is not reported on an FBAR but is reported annually on an 8938.
2. Most conservative folks would annually elect into the treaty by filing an 8833 each year to avoid the growth in such pension plans being taxable.
3. An endowment policy is a foreign asset for an FBAR and an 8938 always has been. It is debatable how a UK endowment policy is taxed in the US. Using the doctrine of constructive receipt, the annual bonuses may have been taxable, the income or gains may be PFIC income. No-one knows, so ask your lawyer for his or her opinion.
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Old Jul 20th 2014, 12:42 pm
  #77  
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by Cook_County
The IRS have a streamlined procedure. It may well be that you do not need to use this procedure and so can save the 5% penalty on undeclared foreign assets if you argue that you have reasonable cause as you relied on an adviser (your CPA) who you thought was competent. Hopefully your attorney has already discussed reasonable cause with you, if not find another one quick.
The discussion should also include two critical points, 1. the chances of the IRS auditing on this particular issue are quite low (their offshore compliance focus is on Swiss bank accounts, not U.K. endowment policies ... ), and 2. the bar to be prosecuted for tax fraud is actually quite high. Much higher than most commentary on forums would lead one to think. So in the unlikely event of an audit, is anything worse than interest/penalties probable?


Sadly the HIRE Act signed on 18 March 2010 significantly extended the statute of limitations so in many cases it no longer closes where there are undeclared foreign items.
Federal Tax Crimes: Special Statute of Limitations Rules Regarding $5,000 Omissions from Foreign Accounts (4/9/12)

The statute extends to 6 years in some cases where more than $5,000 of income relating to a specified foreign asset is omitted, also extends if something was omitted from form 8938. Although in reality, it's highly unusual for the IRS to seek to go back more than 3 years.


2. Most conservative folks would annually elect into the treaty by filing an 8833 each year to avoid the growth in such pension plans being taxable.
3. An endowment policy is a foreign asset for an FBAR and an 8938 always has been. It is debatable how a UK endowment policy is taxed in the US. Using the doctrine of constructive receipt, the annual bonuses may have been taxable, the income or gains may be PFIC income. No-one knows, so ask your lawyer for his or her opinion.
2. In reality, the IRS do not ask for a form 8833 on this. Despite them receiving plentiful data on foreign pensions through form 8938 for a few years now, there's not a single report of forms 8833 being requested/required.

3. The theory may be debatable, however in practice the IRS would normally expect the profit on disposal/surrender to be taxable as ordinary income. They do not routinely enforce so-called PFIC rules in everyday cases, even if these rules were to be applicable to endowments (debatable).


As noted earlier, there is no obligation on someone to amend a tax return if they believed in good faith that it was correct when signed. Considering this, if the only issue is a single, one-off omission of a relatively small endowment policy profit X number of years ago, then the option of simply doing nothing may be the best. Nothing is zero risk, but quite possibly lower risk than other options, and the 3/6 year statute of limitations eventually takes the risk to zero, either through law or fact. If already hired, an experienced tax attorney should be able to explain all of this in more detail.

Last edited by JAJ; Jul 20th 2014 at 12:49 pm.
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Old Jul 20th 2014, 6:33 pm
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

JAJ and CC, thanks again for your thoughts and observations. I can't express how much of a relief it is to have calm and informed commentary and opinions on this subject. Thank you for your time and effort it has helped me tremendously.
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Old Jul 20th 2014, 11:04 pm
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by zuluswede
So by virtue of the treaty and the accompany notes, a "UK pension scheme" is the same as a "US qualified retirement plan" provided it meets the regulatory conditions of the "competent authority" in the UK, if it does, then it is "Tax-Qualified" under the rules of the "competent authority" in the US and as such not required to be reported under the FBAR because of the exemption for "Participants in and Beneficiaries of Tax-Qualified Retirement Plans".

QED or semantic wish full thinking? Comments very welcome.
A foreign pension plan is NOT a US qualified retirement plan. The treaty gives some limited instances when a UK pension plan owned by a US citizen or resident can be excluded from current tax. It is important to understand the structure if the plan when applying US tax regulations.

The bottom line is that if you have a UK employer administered final salary pension there will be no US or UK tax due on it until you start taking income. No FBAR is required, 8938 is required, no trust of foreign trust forms are needed and there is no need to explicitly claim treaty exemption on form 8833 as it is implied for pensions.
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Old Jul 21st 2014, 3:47 am
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by nun
A foreign pension plan is NOT a US qualified retirement plan.

No FBAR is required...
Thanks the clarification Nun. I wasn't implying they were, more that the argument to excluded them from FBAR was derived from their treatment as "tax qualified" plans under the treaty and therefore meet the requirements to be "exempt" as per the FBAR instructions. If that argument cannot be made then I'm still left wondering how UK employer administered retirement plans are specifically excluded from FBAR?
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Old Jul 21st 2014, 4:08 am
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by zuluswede
I'm still left wondering how UK employer administered retirement plans are specifically excluded from FBAR?
Because they are not considered "financial accounts".
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Old Jul 21st 2014, 11:09 am
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by JAJ
Because they are not considered "financial accounts".
Sorry to be belligerent, JAJ, but would you be able to explain why they are not considered to be financial accounts?

Many thanks.
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Old Jul 21st 2014, 12:09 pm
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by JAJ
Because they are not considered "financial accounts".
And also because for most final salary schemes you do not have "signature authority". ie the authority to control the disposition of assets held in a foreign financial account by direct communication.
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Old Jul 21st 2014, 12:24 pm
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by zuluswede
Sorry to be belligerent, JAJ, but would you be able to explain why they are not considered to be financial accounts?

Many thanks.
People have played around with this "what is a financial account" thing for years, in an attempt to bring FBAR reporting into disrepute, by reductio ad absurdum. For instance - some have put out the opinion that you should report your TfL Oyster Card, whatever the highest balance it had for the year. The counter argument? It's not a financial account, so not reportable on FBAR.

For what it's worth, I've never reported my final salary pensions on FBAR, or my Oyster Card. I'm not a good sleeper, but FBAR is not one of the things I worry about...
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Old Jul 21st 2014, 1:38 pm
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by MidAtlantic
And also because for most final salary schemes you do not have "signature authority". ie the authority to control the disposition of assets held in a foreign financial account by direct communication.
Appreciate your input MA, yes I was wondering whether the FBAR exemption could be claimed because one doesn't have signature authority over the funds? But what happens in the case where you can elect to take your benefits at age 55? Doesn't that technically constitute "signature authority"? I would hasten to add I'm happily not able to do that with any of my schemes...
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Old Jul 21st 2014, 1:54 pm
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by zuluswede
Appreciate your input MA, yes I was wondering whether the FBAR exemption could be claimed because one doesn't have signature authority over the funds? But what happens in the case where you can elect to take your benefits at age 55? Doesn't that technically constitute "signature authority"? I would hasten to add I'm happily not able to do that with any of my schemes...
No....you can't direct or control the investments.
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Old Jul 21st 2014, 2:06 pm
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by robin1234
People have played around with this "what is a financial account" thing for years, in an attempt to bring FBAR reporting into disrepute, by reductio ad absurdum. For instance - some have put out the opinion that you should report your TfL Oyster Card, whatever the highest balance it had for the year. The counter argument? It's not a financial account, so not reportable on FBAR.

For what it's worth, I've never reported my final salary pensions on FBAR, or my Oyster Card. I'm not a good sleeper, but FBAR is not one of the things I worry about...
Thanks for the comments Robin, It is so absurd.
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Old Jul 21st 2014, 2:11 pm
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by nun
No....you can't direct or control the investments.
Nun, thanks again. That seems to be the distinction in the difference between "group" pension schemes and the "personal" schemes that seem to become more prevalent around 2000.
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Old Jul 21st 2014, 3:10 pm
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by zuluswede
Nun, thanks again. That seems to be the distinction in the difference between "group" pension schemes and the "personal" schemes that seem to become more prevalent around 2000.
Indeed. Defined benefit schemes and fixed annuities where you buy a future income stream are very different from defined contribution schemes where you retain control of your investments.
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Old Jul 21st 2014, 4:26 pm
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Default Re: Do UK workplace group personal pensions need to be reported on FBAR?

Originally Posted by nun
Indeed. Defined benefit schemes and fixed annuities where you buy a future income stream are very different from defined contribution schemes where you retain control of your investments.
As ever thank you for your insights and expertise.

So in looking for an explanation, it seems to me then, that UK "defined benefit" pension schemes are exempt from FBAR if you can show you have no way of personally directing the investments of your "portion" of the fund from which your benefit will be paid at NRD. Since the scheme is managed by the "employer" or an entity designated by the employer as a "whole" there is no "account" or "portion" that you can control through either verbal or written communication and hence have no "signature of authority".
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